All Forum Posts by: Craig S.

Ok Jon Holdman, thank you much for the help! Being new to this process, learning all FHA rules vs. Conventional, I was very confused on all the rules, DTI calculations, qualifying procedures, etc. You have helped clear it up!

In my current situation and having had just enough income to qualify for my 1st property, it seems that it will probably be best for me to sit tight for 1 year until 2014. At that time I will have more income to show on my tax returns for 2013 and can use that to qualify for my 2nd property purchase sometime in 2014. Then I can sit tight on that for the year of 2014, save the $$ from both properties, and starting in 2015 I will be able to use the rental incomes from all of my properties to qualify for my 3rd and beyond mortgages.

One last question: Do they make you wait 2 years on EACH property before you can use the rental income of THAT property to qualify for another mortgage? Or do they just want you to be in the "rental business" for 2 years overall before they will start to count rental income on any current property?

For example, say I wait 2 years from today (2013) to count my first property rental income (on the property I purchase this year). Then I buy another rental property in 2014. Will I have to wait until 2016 (2 years) to count the rental income from the 2nd property, or do I just have to be in the "rental business" for at least 2 years overall--then I can count any rental income 100% on any property I own from that point on?

Jon Holdman, yes they may (hopefully) be loosening up! In fact, my lender/loan originator initially told me that the rental income could NOT be factored in to help qualify for the loan. It turns out that he said it must be a new rule/change--that FHA is now actually allowing current rental income to go towards my income to help qualify.

I am looking to get into my 2nd property as soon as possible. So from what I understand so far, and from what you have said as well, it seems that I will have to put down about 20-25% on my 2nd property, have a higher interest rate, and will need to use ONLY current personal income to qualify for the 2nd property mortgage, correct? The banks will NOT use the rental income from my 1st property nor will they use the current rental income from the 2nd property in consideration to qualify?

Hi Jon Holdman, thanks for your response. Also just so you know, they (lender) are actually using 100% of the current rental income (one side) on this 1st property duplex for FHA OO financing. By one side, I mean they are using the rental income from the only one side of the duplex as I will be living in the other. Maybe you are referring to "investment mortgages" on future properties?

Hello All,

I am currently in the process of buying my first rental OO property -- a duplex that I will live in one half and rent out the other side. I am using FHA financing.

My ultimate goal is to quickly build as many investment rental properties (multi-family then on to apartments). My duplex mortgage application has been submitted and now it's just a waiting game on the 1st property.

Now I am starting to think about my 2nd property. I am self employed and had just enough income to qualify for my 1st mortgage on this duplex. So, I am wondering what is the best way to qualify for a mortgage on my 2nd property?? -- probably a 2 to 4 unit property. Next year I forecast that I will make about double the $$ (on paper) that I made this year. My expenses will be much less, revenue higher, and therefore net income higher.

1) Will I still have to qualify for my 2nd property using my same amount of current income (for this year) as reported on my taxes? If I had just enough income to qualify for my 1st property, how can I qualify for a 2nd property this year, or will I have to wait until next year's tax returns are much higher? (This is all assuming traditional financing, no owner financing, etc.)

2) Can banks use the rental income on the 2nd property (probably non-owner occupied) to help financially qualify for the 2nd property? If yes, what percent of the current rental income can they use -- 75%??

3) When I move on to my 3rd investment property, when and will they use my rental income from my 1st and 2nd properties that I already have to help qualify for the 3rd loan?

I am confused about what income banks will use in determining my worthiness to qualify for my 2nd, 3rd, 4th...... investment properties/mortgages.

Obviously not many people have enough income (not from rentals) to qualify for 5 or 10 properties. When and how much of the income from current rental properties can banks use to qualify for your 5th home, etc?

Please help!

Thanks,
Craig

Hello All,

I am in the process of starting my first rental deal on a duplex. I have considered many financing methods, and have decided that FHA was probably the best route for me at this time, as I plan on being an owner-occupant anyways (which you need to be to qualify for a FHA-insured mortgage). Couple this with only 3.5% down and a 3.5% interest rate, you can't really beat it.

Anyways, in my initial search for FHA financing, I found it difficult to find an up-to-date accurate source for FHA information online. The best way to learn the current rules is to probably call a lender and see what is going on at the present time, however I found a PDF guide produced by a lender (of which I have no affiliation with) that seems to nicely outlay the current FHA rules.

I thought it may be helpful for those who are just starting out and looking to learn about FHA financing to have this guide available.

Here it is:
http://www.pcmwholesale.com/getform.aspx?id=60

I hope this helps someone as it helped me!

Craig

Thanks for the reply @Harry M.

When assuming setting aside 6 months PITI in your example, when you do incur a CapEx and take money out of the reserve you have set up....do you replenish the 6 month reserve after you pay an expense? Do I always keep 6 months of PITI as a reserve?

How do my numbers above look? Does it look like I am estimating expenses properly, or do they look high or low?

Ok thanks for the info Joel!

Should I still account for management allowance, even if I plan on managing the units myself? Should I account for management when determining if it is a good deal or not?

Hi All,

I am trying to work the numbers on a deal that I am interested in and am curious as to what Capital Expenses I should average into my long-term costs? For example: if the roof is already in good shape, should I still set aside money in a reserve fund for future replacement of a roof? Say a new roof is $5k and lasts for 20yrs...should I set aside in my "reserve funds" about $250 per year or $20.85 /month?

1) Should I also try to do the same thing (set aside reserve funds) for about everything: water heater, windows, furnace, etc? Or does this seem overkill assuming the items are in good shape already? If I add up all possible expenses for a reserve fund, it seems that my cashflow will be very low.

2) I understand it is important to account for vacancy, maintenance, etc. but when it comes to setting aside money for major future repairs, I am not sure how much money I should be setting aside. I don't want to set aside too little, but I also don't want to estimate too high expenses for every little thing and never keep any cashflow on the deal.

3) Also, should I be setting aside a management allowance, even if I plan on managing the property myself? If I set aside a 10% management allowance, this also kills cashflow. This is a duplex and I would doubt most people who purchase a duplex would hire a management company anyways?

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Below is a summary of my deal and expenses:

Duplex - Gross Monthly Rents $1,300.00

Monthly P&I Only $485.00
Monthly PMI Insurance (If Applicable) $107.00

Total Debt Service & PMI $592.00

Cashflow Using 50% Rule
Monthly Operating Expenses (50% Rule) $650.00
Monthly Cashflow (NOI - P&I and PMI) $58.00
Annual Cashflow $696.00

Cashflow Using Actual Numbers
Monthly Operating Expenses $559.85
Monthly NOI (Gross Rents - OpEx) $740.15
Annual NOI $8,881.80
Monthly Cashflow (NOI - P&I and PMI) $148.15
Annual Cashflow $1,777.80

Monthly Operating Expenses
Monthly Insurance
Homeowner/Hazard Insurance $69.00

Monthly Property Taxes $155.00

Monthly HOA Fees (If Applicable) $-

Monthly Management
Management Allowance 10% of Gross Rents $-

Monthly Utilities (If Owner Paid)
Electric $-
Water $-
Sewer $-
Gas $-
Garbage Pickup $-
Water & Sewer & Trash $143.00

Other Costs (Averaged Monthly)
Vacancy (7% of Gross Rents) $91.00
Advertising $-
Snow Removal $-
Landscaping $15.00
Maintenance $25.00
Office Supplies $-
Accounting $9.00
Legal Fees & Court Costs $10.00

Capital Expenses (Averaged Monthy)
Roofing ($5k / 20yrs) $20.85
Furnace & A/C ($4k @ 15yrs) $22.00
Water Heater(s) $-
Windows $-
Siding $-

Total Operating Expenses $559.85

Total Expenses Overall Including PITI & PMI = $1,151.85
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Please answer my first 3 questions at top first and possibly analyze my numbers if you wish. Thanks!

Kyle Kovats--he means that 110k duplex I was talking about in my post.

Where I said "Option #1: Start off by buying a rental duplex for about $110,000 that provides me about $200 /month cashflow ($100 per door) -- this being calculating the cashflow using the "50% rule"."